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  • UBIT question

    Hi,
    I just got into self directed real estate retirement investing. I started with a SDIRA this year and did purchase a $10,000 investment in a syndication. I became more educated and later in the same year realized I qualified for an Individual 401-k. I have rolled over " in kind " my syndication for the IRA to the 401k as well as some cash. The syndication has been re-registered in the entity 401k. The IRA is now empty. I did this realizing the 401k is a better vehicle in terms of the UBIT tax.

    My question is if the $10,000 syndication generates UDIF income subject to UBIT tax will I need to pay it since the investment is no longer in the IRA. I appreciate your thoughts. I will ask my accountant but I'm not sure he'll know and I get great learning from this forum.

  • #2
    Hi Docdad, yes, I believe UBIT also applies to these investments from a 401k if applicable (most syndications leverage bank financing and this % of the investment would apply as UBIT technically). However, I have had a conversation with my custodian about UBIT and he advised that UBIT was "self-reported" to the IRS, and that he knows that a significant amount of their customers do not report this. Do what you like with that information, but there is certainly some risk to not reporting of course.

    EDIT for a CORRECTION: I just listened to a WCI podcast episode last night where the host says that UBIT does NOT apply to 401K. It was on episode 168: Retirement accounts vs Real Estate.
    Last edited by Drewski; 11-19-2020, 09:38 AM.

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    • #3
      Originally posted by Drewski View Post
      Hi Docdad, yes, I believe UBIT also applies to these investments from a 401k if applicable (most syndications leverage bank financing and this % of the investment would apply as UBIT technically). However, I have had a conversation with my custodian about UBIT and he advised that UBIT was "self-reported" to the IRS, and that he knows that a significant amount of their customers do not report this. Do what you like with that information, but there is certainly some risk to not reporting of course.

      EDIT for a CORRECTION: I just listened to a WCI podcast episode last night where the host says that UBIT does NOT apply to 401K. It was on episode 168: Retirement accounts vs Real Estate.
      Thanks for your reply.
      After reading some more, I believe most real estate syndications are unleveraged so UBIT won't apply to 401-k.

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      • #4
        Docdad, not sure what syndications you are looking at, or what return profile you are looking for. Most syndications giving decent returns are probably leveraged to some degree, though. Another thought - you may want to seek out another accountant to consult with if you are going to dive into investing in syndications and your current acct can't help you with those. It's important to get the right tax treatment!

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